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An Oreo and Your 401K

Shannah L. Compton   |   June 14, 2013    2:28 PM ET

How many Oreo fans are out there? There are so many "imitation" Oreos... but there is no substitution for the original! Don't even get me started on all of the "poser" cookies trying to pass themselves off as the as the real deal!

Everyone has their method of eating the cookie as well. Personally, I separate the two halves and then it's a toss up to which side I eat first. Do I go with the cookie, knowing I'm saving the best for last or do I eat the side with the cream, which is what I really want? Always a tough choice, but 9/10 times, eating the side with the cream is always my go to (and don't tell anyone, but sometimes I don't even eat the other half).

Follow me on this analogy. Trying to decide what to do with your old 401K from your employer is just like that tough Oreo decision. Do I roll it over, or do I just leave it there because it's easy? So many people just leave their 401K with the old employer. They forget about it and never take a second look.

STOP doing that! I want you to enjoy the best half of your 401K cookie right now!

My advice is to always roll over your old 401K into a new IRA. There are a few rules to follow, most importantly that you do a direct transfer and never touch the funds yourself.

The new IRA offers more investment funds and the chance to have it professionally managed by a financial planner to ensure growth for your retirement. Plus, you can take advantage of a few cool perks like being able to withdraw $10,000 penalty-free for the purchase of a new home -- SCORE!

If you have an old 401K just sitting with an old employer, you are probably missing out on some very valuable gains. AT the end of the day, it's all a matter of dollars and sense.

Ok, who is craving an Oreo right now?

5 Common Financial Fears (and How to Overcome Them)

Women & Co   |   September 13, 2012    4:51 PM ET

By Linda Descano, CFA®, President and CEO, Women & Co. and Managing Director and Head of Digital Partnerships, North America Marketing, Citi

We've all heard the adage "when the going gets tough, the tough get going." And we've most likely seen it in action: people who experience hardship, financial or otherwise, and face that hardship with steely resilience and fervor, wasting no energy on self-pity and the blame game. On the flip side, we've also watched others fall victim to the hardship and be paralyzed by their anxiety or fear. How do you avoid paralysis and stay financially resilient in the face of adversity?

Here are five actionable steps you can take based on the insights that Women & Co. readers have shared with me and a bit of my own experience tackling financial fear:

1. Embrace and pinpoint your fears.

As Betsy Myers says in Take the Lead, leaders aren't fearless but have the courage to confront and push through their fears. This starts, Betsy believes, with pinpointing exactly what it is you're really afraid of. When it comes to your finances, is it admitting you made an investment mistake, lost your job, or can't afford to go out on the town every weekend?

2. Believe in yourself, stick to your values, and have faith that things will improve even if you don't have all the answers today.

This is advice from Mary Carlson, Holly Hicks-Opperman, and Tricia Doane who are members of the Citi-sponsored Connect: Professional Women's Network on LinkedIn. I would add this: remember what makes you valuable is who you are as a person, not about what you have.

3. Take stock of where you are financially: what is coming in, what is going out, and what you have in reserve.

Then put together an action plan based on what's important to you and where you want to be tomorrow financially. Whenever I feel financially anxious, putting "pen-to-paper" or "stylus-to-tablet" helps me breather easier and regain some measure of control over my financial life.

4. Seek out professional advice.

A banker, debt counselor, or licensed financial adviser can review your situation, offer a fresh perspective, and connect you with resources, online and offline, for dealing with the financial issues you are facing and refine your action plan.

5. Focus on consistency, not perfection.

As you move forward, keep in mind that financial toughness is a marathon, not a sprint, so you don't have to tackle everything at once. Taking it one step at a time will help you build good financial habits that are sustainable through the good and not-so-good times. From time to time, even the most financially strong stumble -- at least I do! -- the difference is that we regain our balance and keep moving, rather than let that misstep derail us for weeks, months, or years.

About the Author:
Linda is President and CEO of Women & Co., a service of Citi that brings women relevant financial content and thoughtful commentary. She also serves as a Managing Director and Head of Digital Partnerships for North America Marketing at Citi. A recognized expert on the topic of personal finance, Linda is also the featured contributor on womenandco.com and Manilla.com, for which she serves as their women and money expert. Her writing, tips and commentary have appeared in countless publications including: Huffington Post, MORE Magazine, American Banker and MSN Money to name a few. She is the recipient of a 2011 Luminary Award from Womensphere® and was the New York recipient of the 2009 Corporate w2wlink Ascendancy Award.

Let's Value People as an Asset, and Bring Financial Statements into the 21st Century

R. Paul Herman   |   October 28, 2011    3:16 PM ET

What is your organization's most important asset? CEOs often respond that the organization's people are its greatest asset. But if this is true, where are people accounted for in the financial statements? Today, people are generally classified as expenses on the income statement and liabilities on the balance sheet -- not as an investable asset. Thus, when CEOs seek to increase profit, they cut costs -- like people -- rather than investing in assets -- like people -- that can appreciate. (Co-authored with Tom Bowmer of HIP Investor Inc.)

What is your Organization's Most Important Asset?

"The most valuable assets of a 20th-century company were its production equipment," said management guru Peter Drucker in 1999. "The most valuable asset of a 21st-century institution, whether business or non-business, will be its knowledge workers and their productivity." Drucker's prescient observation clearly highlights the reality that a majority of corporations face in today's "knowledge economy." Intangible assets -- patents, intellectual property, brands, and research & development -- are all created by people, and they are the core contributors to profits and shareholder value. In fact, investment advisory firm Ocean Tomo estimates that in 1975 more than 80% of the value in the S&P 500 firms consisted of tangible assets -- like land, plant and equipment. In 2010, approximately 80% of the S&P500 market value is attributed to intangible assets. But, today's accounting systems and financial reporting are still using 20th century definitions, creating a "gap in GAAP" (the Generally Accepted Accounting Principles) on how value is created in the 21st century.

Where are People in the Financial Statements?

So why are employees categorized only as expenses (i.e. salaries) and liabilities (i.e. pensions) in the financial statements? The accounting profession has not adequately developed tools to address the structural changes in our new economic landscape. Traditional accounting methods have been designed to account for tangible assets -- like a manufacturing plant -- that depreciate over time and are reported at historical cost. Since intangible assets are not easily valued -- like a company's brand -- measuring and pricing them can be difficult. Many people may use this as an argument against creating updated accounting standards. New rules could give companies the ability to manipulate their financial statements under the guise of valuing their intangible, human assets. However, this would be missing the point.

The overarching goal of financial statements is to attempt to accurately depict the economic reality of a company and to provide users with relevant information that is going to enable investors to make sound decisions regarding their investments. A reporting system that fails to provide information on the core aspect -- more than 80% of the stock price value -- of a company's ability to create value is missing the mark. People invent products (like Apple's iPad), and people serve customers (like Zappos). Teams of people work with networks of suppliers (like Walmart) that make goods and provide services, yet all of this value is under-accounted for because people are an "invisible" asset -- and one not quantified at that.

What Choices are there to Value People as Assets?

Four decades ago in the 1960s, researchers and academics created methodologies to close the information gap created by the increasing value of intangible assets. A group of researchers at the University of Michigan authored a series of papers to develop the field of "Human Resource Accounting." In January 1967, the Harvard Business Review published, "Put People on Your Balance Sheet," which discussed various methodologies for classifying human resources as assets, including:

  • historical cost,
  • replacement cost, and
  • opportunity cost.[4]

Even the American Accounting Association allocated expertise to evaluate these approaches. In 1972, and again in 1973, the AAA formed a committee to evaluate the merits of "Human Resource Accounting." However, according to Eric Flamholtz, due to the difficulty of finding public companies to serve as test cases, the movement to put "People on the Balance Sheet" lost its momentum.

Fortunately, the effort to understand, measure, and value intangible assets has resurfaced nearly 43 years later. HIP Investor, along with our research partner Solaron, has discovered at least a dozen companies -- including global firms Infosys and Tata -- that are pioneering the integration of human asset reporting into their financial statements.

Infosys's Human Resource Valuation in the Annual Report

For example, Infosys (NASDAQ: INFY), the global technology company based in India, has measured the value of its human capital - a method co-developed by Professor Baruch Lev of NYU-Stern's School of Business - in its public and transparent annual reports for the past four years.[6] By using the Lev-Schwartz model, which calculates today's value of future compensation to employees of varying ages and experience levels, managers and investors can now track a variety of measures related to Infosys' human resources, such as "return on human resource value" and "value of human resources per employee." Infosys's annual report also includes a "comprehensive intangible assets score sheet" that can be used as a decision-making tool to determine how successful the firm has been at investing in its people from year to year.

A key factor in the shift toward viewing people as an asset is recognizing that an employee's value can appreciate with training, engagement, and teamwork -- all investments that are essential for 21st century firms. That is why our research at HIP Investor looks for all leading indicators of "human impact and profit (HIP)" in our ratings and ranking of companies, the composition of our portfolios, and the managing of our client's wealth.

Does Focusing on People Generate Higher Financial Returns?

In academia, researchers are striving to link intangible value to a company's profit and performance; you can find many of these papers at www.SRIstudies.org. The winner in 2010 was Alex Edmans at the Wharton School at the University of Pennsylvania, who found that the stock market does not fully value information about intangible assets, including employee satisfaction. Professor Edmans analyzed Fortune magazine's annual "100 Best Companies to Work For in America" lists from 1998-2010 and found that a portfolio of the publicly-listed firms consistently outperformed the standard benchmarks.

Let's bring financial statements into the 21st century. Get your company to follow the lead of companies like Infosys and Tata, and begin to quantify the value that people add to your organizations. Currently, there are no apparent leading U.S. or European companies performing this calculation -- or at least not communicating it to their staff or investors. This powerful, transparent reporting on all the assets of a company has the potential to be a catalyst for developing a set of best practices that will provide a reliable methodology for the measurement and valuation of intangibles. When this eventually happens, CEOs seeking to increase shareholder value should be more apt to spur investment in -- and not so easily lay off -- the core creators of value in their business: the people. It is only then that CEOs can be truly authentic when they herald that "people are their company's greatest asset."


Co-author Tom Bowmer is a Corporate Financial Analyst at HIP Investor Inc., a 2nd-year MBA at San Francisco State University, and a Phi Beta Kappa fellow from the University of California at Berkeley.

NOTE: This is not an offer of securities nor a solicitation. The information presented is for information and education purposes, and does NOT imply any investment recommendations. Past performance is not indicative of future results. All investing risks loss of principal. The authors, HIP Investor and HIP's clients may invest in the securities mentioned above, including in the HIP 100 Index portfolio. Details and full disclosures are at www.HIPinvestor.com

FDIC Chief: Too Big Banks Should Be 'Downzied'

Ryan McCarthy   |   March 1, 2011    7:44 AM ET

WASHINGTON (By Dave Clarke) - America's big international banks should restructure their operations unless they can prove they can easily be broken up if they start toppling during a financial crisis, said U.S. regulator Sheila Bair.
Multinationals will need to set up more foreign subsidiaries and realign their legal structures to make it easier for regulators to liquidate them if necessary, Bair told the Reuters Future Face of Finance Summit.

"If they can't show they can be resolved in a bankruptcy-like process... then they should be downsized now," said Bair, chairman of the Federal Deposit Insurance Corp.

"There is no reason in the world why they should get some special treatment backstop that other businesses in this country don't have," Bair said.

She also said investors need to accept that they will get lower returns from banks that hold higher capital and run safer operations.

The aim of orderly liquidation is to avoid a repeat of 2008, when the Bush administration bailed out American International Group and other firms but not Lehman Brothers. Lehman's bankruptcy virtually froze capital markets.

The "living will" requirement mandated by last year's Dodd-Frank financial reform law is also designed to end the idea that some firms are too big to fail. It would put the greatest burden on banks with complex businesses and big international presences such as Citigroup, Bank of America, JPMorgan Chase, Goldman Sachs and Morgan Stanley.

By year's end, big banks are expected to file with regulators their plans that would show how they can be closed down if they face a liquidity crisis.

REGULATORS VS SHAREHOLDERS

Bair said traditional deposit-taking banks in the United States probably can produce plans for a shutdown, but large multinationals with complex legal structures need to simplify.

"The burden is on them initially to show us that they don't think they need subsidiarization," she said. "They need to give us a plan on how they can be resolved on an international basis without it."

A former general counsel at Bair's agency said there may a tension between banks trying to meet these new regulations and maximizing shareholder value.

"If you set up a business in a way to optimize ease of liquidation, that may not be the way to optimize running a successful business," said John Douglas, now a Davis Polk attorney.

Others said the changes may be more hassle than expensive and the changes would be legalistic. "This is just the latest in 'Can you jump through this hoop backwards?'," said Paul Miller, an analyst with FBR Capital Markets.
Bair made clear she was not advocating that some large banks be broken up now -- only that they need to make structural changes so that they could be broken up if they begin to fail.

"Far too many of them, they manage their businesses along business lines as opposed to legal entity," she said.

INTERNATIONAL CHALLENGES

Bair is now in the final months of her five-year term heading the FDIC, which she led during the tumult of the financial crisis. Her term ends in June.

Bair said she hopes to have major aspects of new capital requirements and the liquidation regime in place before she departs.

Among her concerns going forward is that new capital rules, known as Basel III, agreed to by leaders of the Group of 20 leading nations in November, will not be carried out with their intended strength.

Banks have argued they are too strict and will impede their ability to lend and aid economic growth, an argument that may have traction with politicians.

"I hope political leaders hold firm on this and understand that this is really something to protect their taxpayers and to protect their economies, this needs to occur," she said.

(Reporting by Dave Clarke in Washington; Additional reporting by Joe Rauch in Charlotte; Editing by Tim Dobbyn)

Copyright 2010 Thomson Reuters. Click for Restrictions.


Obama Calls For End To Fannie Mae, Freddie Mac

Shahien Nasiripour   |   February 11, 2011   10:45 AM ET

NEW YORK -- The Obama administration outlined three options Friday to change the way home loans are financed, calling for the slow death of mortgage giants Fannie Mae and Freddie Mac and jumpstarting the debate over the future role of government in helping borrowers secure mortgages.

If implemented, the proposals would likely make it more expensive for borrowers to buy a home and thus restrict the availability of mortgages. It also marks a significant departure from past government policies, which treated homeownership in America as a virtual right.

"The government must...help ensure that all Americans have access to quality housing that they can afford," the administration said in its report to Congress, delivered as part of last year's financial overhaul law. "This does not mean our goal is for all Americans to be homeowners."

The troubled housing market -- a legacy of the deep bust that followed a historic boom in which reckless lending and borrowing led to the most punishing downturn since the Great Depression -- led to calls for the federal government to radically reform the way home mortgages are financed. There's $10 trillion in outstanding home loan debt.

Policy makers, bankers and investors agree that taxpayer-owned Fannie and Freddie should be wound down. But there's no consensus on what should replace them.

The first option outlined in the report calls for a private system in which lenders and investors fund new mortgages, with a limited role for existing federal agencies to subsidize home loans for the poor and other special groups, like veterans. The second proposal calls for much of the same, but it includes a government backstop for mortgages during times of market stress. If credit markets froze -- like they did at the height of the crisis -- the government would step in and guarantee new home loans. The third option outlines a much broader government role. Under this alternative, taxpayers would insure securities backed by home loans, which is what Fannie and Freddie already do.

The administration's outline explained the benefits and costs of the various options, but stopped short of endorsing any of them. Critics will likely say the administration punted.

The 31-page outline says "very little that is surprising or market-moving as it lacks specific details or...any extreme views," mortgage bond strategists Greg Reiter and Jeana Curro at RBS Securities wrote in a note to clients. They were "mildly surprised" at the lack of details, though.

Analysts at Amherst Securities, led by Laurie Goodman, said in a report that the plan is "largely a non-event."

Along with federal agencies, taxpayer-owned behemoths Fannie Mae and Freddie Mac guarantee more than nine of every 10 new mortgages. They were effectively nationalized in 2008. Delinquencies on home loans they back have thus far cost taxpayers more than $150 billion. Their regulator, the Federal Housing Finance Agency, estimates Fannie and Freddie could need up to $363 billion in taxpayer cash through 2013, it said in an October report.

"We are going to start the process of reform now," Geithner said in a statement. "But we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."

Geithner said it will take another three years for the housing market to recover. It currently suffers from a high foreclosure and delinquency rate, low levels of homeowner equity, and an abundance of homes for sale without a corresponding number of interested buyers.

After that, it will likely take two to three years for policy makers to come to agreement on the government's role in funding home loans, Geithner said. The final step calls for new legislation. All told, Geithner said it will take between five to seven years to transition to a new system.

Steps to take during that time to slowly wean the market off total government support largely revolve around making Fannie- and Freddie-backed mortgages more expensive, which would make loans not backed by taxpayers more desirable. This includes increasing the fees Fannie and Freddie charge to guarantee home loans backing securities; pushing them to require homeowners to purchase additional mortgage insurance or put at least 10 percent down; and reducing the size of individual loans that Fannie and Freddie could guarantee.

But while the administration wants to decrease government's role in funding home loans, it wants to increase federal subsidies for rental housing. Shaun Donovan, the secretary of the Department of Housing and Urban Development, said Friday that half of renters spend more than one-third of their income on housing, and one-quarter of renters devoted more than half, according to HUD research.

Reactions from lawmakers ranged from pleasant surprise to muted displeasure.

Rep. Barney Frank of Massachusetts, the top Democrat on the House Financial Services Committee, praised in a statement the administration's support for increasing resources directed towards renters, but said it is "not clear" whether lenders and investors alone could support the market in a way that makes mortgages affordable to borrowers.

Rep. Ed Royce, a Republican from California who also serves on the financial services committee, said he was "pleasantly surprised" that the administration wants to wind down Fannie Mae and Freddie Mac.

"The 800-pound gorilla in the room remains the level of government support in the mortgage market going forward," Royce said in a statement. "On that front, [the Obama administration] decided to punt."

Rep. Maxine Waters, a California Democrat and another financial services committee member, said she has "concern" that the administration's proposals "may radically increase the cost of homeownership, and housing in general."

The theme of the report and subsequent conversations with administration officials stressed the Obama team's desire to have a smaller government footprint in the mortgage market.

"The report's takeaway message is that the U.S. housing finance system is likely to undergo major changes going forward, and with the likely outcome being a significantly smaller role for the U.S. government," analysts at research firm CreditSights said in a note.

The reality is Democrats want continued government support of mortgages backing securities.

A fully privatized system would lead to higher costs for mortgages, but it would also nearly extinguish the risk posed to taxpayers and would enable resources currently devoted to housing to go to more productive channels, benefitting the economy in the long run, the administration noted in a nod to the predominant Republican position.

A hybrid approach that calls for increased government support during times of market stress would enable the government to lessen the social costs from contractions in credit to borrowers. Maintaining government backing of home loans at all times ensures cheap mortgages, thus artificially inflating home prices and allowing resources to continue flowing to housing. This proposal also puts taxpayers on the hook for losses.

But while observers say the administration appears to favor a robust government role -- analysts at RBS Securities say government-sponsored entities and federal agencies will likely end up supporting 50-65 percent of the market -- it's not clear that one is needed.

Firms would package home loans into bonds and Investors would buy them absent government guarantees, market participants said Friday. Mortgages would be more expensive, but only compared to today's historically-low prices. Over time, they'd moderate to average levels, they said.

In effect, Democrats' argument that the cost of mortgages would skyrocket lacks merit, they said.

"The notion that the cost of these products would be extraordinarily high is predicated on the notion that we continue to accept no down payments on loans," said Joshua Rosner, managing director at independent research consultancy Graham Fisher & Co. and one of the first analysts to identify problems at Fannie Mae and Freddie Mac.

Brett D. Nicholas, the chief investment and operating officer at Redwood Trust, a California-based real estate investment firm, said that with taxpayers backing 95 percent of new home loans "there is no room for the private sector."

"It's a circular argument to say that, 'Well, the private sector is not there so oh my God rates are going to go up hundreds of basis points,'" Nicholas said. "It's just not true." One basis point equals 0.01 percentage point.

"The fact is the private sector is there," Nicholas added. "We have capital. Lots of firms like us have capital. There's trillions of dollars of demand from life insurance companies, banks, [and] mutual funds."

Last year, his firm sponsored the only private-sector security backed by new home mortgages and sold to investors. The deal contained more than $200 million worth of jumbo mortgages, industry parlance for home loans too big to be backed by the Federal Housing Administration, a government agency, or Fannie Mae and Freddie Mac.

"The dollars are there," Nicholas said. "There's just no loans to sell to [investors] because they're all going to Fannie, Freddie and FHA."

Rosner said that if borrowers start putting down 20 percent of the purchase price, investors would price in lower risks of default and snap up the securities.

He added that getting borrowers to put that much down is good for the economy because it gets consumers in the habit of saving more and only being willing to buy a home once they were sure they could afford it.

This would lessen the risk of a housing collapse and minimize costs to taxpayers, Rosner said, as opposed to the administration's preferred approach of a continued government role, which he argues simply continues the current system of privatized gains and socialized losses.

"The administration is still not thinking of ways to incent proper behavior," Rosner said. He added that the tax code could bring about many of his recommendations.


*************************

Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

Regulators Want To Push Market Away From Credit Rating Agencies

Ryan McCarthy   |   February 9, 2011    8:22 AM ET

WASHINGTON: Securities regulators on Wednesday will move to scale back markets' reliance on credit rating agencies, after the financial crisis laid bare the industry's shortcomings.

The Securities and Exchange Commission is expected to propose that one of its key documents for securities offerings no longer include ratings references designed to give investors confidence in the company behind the securities offering.

The SEC's effort to extract rating references predates the financial crisis, but it lost steam when global financial markets started going into panic mode.

In 2009 the agency stripped some rating references from regulations, saying it was concerned about undue reliance on the ratings, but the removal of everything was not mandatory.

The Dodd-Frank financial law, however, changes that by requiring government agencies to go through their regulations and remove rating references.

On Wednesday, the SEC will resuscitate a similar plan it proposed in 2008, in its first move to remove ratings from its regulations since the Dodd-Frank law was enacted in July.

Credit-raters have often been blamed for helping fuel the crisis by giving overly positive ratings to loans backed by toxic subprime mortgages.

Dodd-Frank mandates some credit-rating reforms, such as mitigating conflicts of interest, holding credit-raters accountable for their ratings and reducing investor reliance on them.

But credit-raters such as Moody's Corp, McGraw-Hill Cos' Standard & Poor's, and Fimalac SA's Fitch Ratings are not facing the same sweeping overhaul as banks and mortgage lenders, largely because lawmakers could not come up with a good alternative to what they offer.

The lack of a good alternative has even caused some financial regulators to worry that Dodd-Frank goes too far, especially bank regulators who rely on ratings providers to assess the risk associated with a bank's capital.

MORE THORNY ISSUES AWAIT

The SEC's proposal on Wednesday specifically would strip rating references from a form known as an S-3, a simplified registration form designed to expedite the process for a primary offering of public securities.

A company can qualify to file an S-3 if it meets criteria that make the SEC comfortable with it's getting greater access to the public securities market.

Companies offering nonconvertible debt securities, for instance, can qualify for an S-3 filing as long as the debt is given an investment grade rating.

The SEC plans to propose stripping out that rating requirement and replacing it with an alternative.

Instead of relying on a high-investment grade rating, companies could file primary offerings using the S-3 form if they have issued more than $1 billion in nonconvertible debt securities over a three year period, according to people familiar with the matter.

Plans to remove other rating references could prove more contentious than Wednesday's action, namely what the SEC will do with the ratings of securities underlying money market mutual funds.

Under current rules, money market mutual funds must invest in high-grade securities. Advisers delegated by the board of directors also are required to make sure the quality of securities are of a high quality.

Industry advocates favor this approach, and say it bolsters investor confidence.

The SEC did not remove the rating reference in the past because the industry widely opposed the removal. Dodd-Frank, however, leaves the SEC little choice.

So far, SEC staff has not been able to come up with a suitable alternative to a rating, according to a person familiar with the matter. That means investors would only be able to rely on one source -- the adviser given the task of ensuring the securities are of a high quality.

This could raise concerns within the mutual fund industry, which has feared a removal of ratings generally could harm investor confidence.

(Editing by Steve Orlofsky)


Copyright 2010 Thomson Reuters. Click for Restrictions.

Regulators To Top Execs: You'll Have To Wait To Collect Bonuses

Ryan McCarthy   |   February 8, 2011    8:50 AM ET

WASHINGTON (AP, By Marcy Gordon) -- Federal regulators have proposed making top executives at large financial firms wait at least three years to be paid half of their annual bonuses, a move designed to cut down on risky financial transactions.

The Federal Deposit Insurance Corp. voted Monday to advance the rule, which builds on more general requirements in last year's financial regulatory law to curtail risk-taking. The rule targets firms with $50 billion or more in assets, seeking to tie bonuses with financial performance over a longer time period.

The FDIC also moved Monday to make larger banks pay a greater portion of fees to insure all U.S. banks.

The bonus requirement would apply to major financial institutions, such as Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc., and Wells Fargo & Co.

Lawmakers and government officials have blamed outsize bonuses for helping to fuel the financial crisis, saying they encouraged short-term risk-taking. The financial regulatory law enacted last year simply directed government regulators to put in rules to prohibit incentive-based payments that encourage excessive risks.

Other financial regulators -- including the Federal Reserve, two Treasury Department agencies, and the Securities Exchange Commission -- must also vote to send out the bonus rule for public comment before it is finalized. They are expected to act in the next few weeks, and the final rule could take effect by the fall, officials said.

FDIC officials stressed the agency isn't looking to limit compensation.

"This proposed rule will help address a key safety-and-soundness issue which contributed to the recent financial crisis," FDIC Chairman Sheila Bair said before the vote.

Payment of bonuses makes more sense if a large chunk is spread over several years in a way that reduces the amount executives receive "in the event of poor performance," the FDIC said. "The risks of strategic and other high-level decisions of executive officers may not be apparent or become better known for many years."

Financial firms with at least $50 billion in assets also would be required to identify their employees beyond executive officers who could expose the firm to substantial losses. That could include traders. In addition, the firms' board of directors would be required to approve compensation packages for those employees that are based on incentives.

The proposed rule could lead some executives to go to private-equity firms or hedge funds, said Sandy Brown, an attorney at Bracewell & Giuliani in Dallas who represents banks.

"We've already lost some pretty talented people to other industries that aren't so highly regulated," Brown said in a telephone interview. "There's a chance that the pendulum has swung too far and it will make it more difficult for financial institutions to attract the best and the brightest."

The FDIC's proposal to make larger banks pay a greater portion of fees to insure all banks was required under the new law. The rule changes the basis for assessing a bank's premiums, from the amount of its deposits to its assets. Officials say that will more clearly reflect the risks to the insurance fund.

Last year 157 banks failed, the most in nearly two decades.

Citigroup Was On The Verge Of Failure, New Report Finds; Rescue Was Based On 'Gut Instinct'

Shahien Nasiripour   |   January 13, 2011    3:06 PM ET

Citigroup, the nation's third-largest bank by assets, was on the verge of being closed by regulators the week of Nov. 24, 2008 as depositors rapidly withdrew money and the bank's counterparties declined to provide it credit, according to a government report released Thursday.

The new findings shed light on the degree to which Citigroup, the financial services behemoth with a long history of finding itself in trouble and receiving government support, was actually in danger of failing during the fall of 2008. Until now, few were aware that Citi was perilously close to being shut down.

"We were on the verge of having to close this institution because it can't meet its liquidity Monday morning," said Sheila Bair, chairman of the Federal Deposit Insurance Corporation, during a meeting the previous Sunday night, according to the report by the Special Inspector General for the Troubled Asset Relief Program.

"Without substantial government intervention," said another FDIC official, bank regulators and Citigroup "project that Citibank will be unable to pay obligations or meet expected deposit outflows next week," according to the report.

Yet while policy makers unanimously agreed that Citigroup needed additional help -- this was after the megabank had already received $25 billion in TARP funds -- the "strikingly ad hoc" nature of the response was troubling, notes the inspector general, known as SIGTARP.

Citigroup's problems were well known to regulators. In May 2008 -- six months before the second multi-billion dollar infusion of taxpayer cash into the lender -- regulators at Geithner's New York Fed forced the bank to create a plan to strengthen its risk-monitoring practices so it could better judge the bank's exposures.

A month later, bank overseers at the Office of the Comptroller of the Currency compelled the bank to enter into another agreement, this time requiring upgrades to the firm's risk management. That agreement is still in effect today, according to SIGTARP's report.

Even so, the consensus to give Citigroup more taxpayer cash "appeared to be based as much on gut instinct and fear of the unknown as on objective criteria," according to the report. One FDIC official told SIGTARP that policy makers "made a judgment call" on the degree of Citigroup's importance to the entire fabric of the financial system.

More than three years later, such judgment calls persist. Treasury Secretary Timothy Geithner, who effectively oversaw Citigroup as the then-president of the Federal Reserve Bank of New York, told SIGTARP during an interview last month that it's not possible to create effective, objective criteria for evaluating the risk a financial firm poses to the system.

"It depends too much on the state of the world at the time," Geithner said Dec. 21. "You won't be able to make a judgment about what's systemic and what's not until you know the nature of the shock."

Geithner added that lenders would simply "migrate around" whatever objective criteria policy makers developed in advance.

Taxpayers may once again have to support failing financial firms based on gut instinct alone.

"In the future we may have to do exceptional things again if we face a shock that large," Geithner said, according to the report. "You just don't know what's systemic and what's not until you know the nature of the shock."

The 2010 law overhauling financial regulation, known as Dodd-Frank, gives policy makers "better tools," Geithner said, "but you have to know the nature of the shock."

Given the ambiguity, SIGTARP notes that taxpayers likely won't know the extent to which they'd be on the hook for future shocks to the system until the next crisis.

Despite the concerns about how regulators acted and how they might do so in the future, the report cautiously called the taxpayer rescue a success. Citigroup didn't fail, the financial system largely stabilized, and taxpayers turned a profit on their investment.

"We appreciate the report's conclusion that Treasury's investment in Citigroup was successful and that our efforts 'achieved the primary goal of restoring market confidence' during a time of unprecedented turmoil," Tim Massad, the Treasury official now overseeing the taxpayer bailout, said in an e-mailed statement.

As for Citigroup, despite a Feb. 22, 2009, e-mail from Bair stating that the bank needed management changes "at the top of the house," much of its senior managers remain, including its chief executive, Vikram Pandit.

In addition, the internal auditor at another government agency, the Securities and Exchange Commission, is probing whether the SEC's top enforcement official, Robert Khuzami, gave preferential treatment to Citigroup executives in the agency's $75 million settlement with the firm last year over its alleged failure to adequately disclose crisis-era risks to investors, reports Bloomberg News.

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Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

READ the full report:


SIGTARP Report on Citigroup

Obama's Next Chief Of Staff Has Millions In JP Morgan Stock

Shahien Nasiripour   |   January 10, 2011   11:23 PM ET

President Barack Obama's next chief of staff holds more than $7.6 million worth of stock in JPMorgan Chase, according to a regulatory filing.

William M. Daley, vice chairman at JPMorgan Chase, holds 175,678 shares in the $2.1 trillion behemoth, the nation's second-largest bank by assets. Daley headed the firm's Corporate Responsibility division, which included oversight of the firm's lobbyists and relations with government officials.

Daley exercised his holdings on Thursday, the same day Obama announced he was bringing in the former banker to run the White House. Daley acquired 201,913 shares to bring his total to 316,327, but sold 140,649 of those shares to cover tax liabilities, according to the filing with the Securities and Exchange Commission. JPMorgan shares closed at $43.40 on Monday.

A White House official said Daley will sell his stake in his former employer.

The administration has come under fire since Obama's announcement that he would name a former banker to the pivotal role, which many experts describe as one of the most powerful positions in government. While business groups and various elected officials have hailed the choice as a move to repair the White House's apparently fractured relationship with corporate America, those wary of Wall Street's growing influence in Washington have denounced it as yet another sop to the nation's largest banks.

Daley's holdings could present a conflict of interest, experts warn.

"JPMorgan Chase is the nation's second-largest bank. Anything and everything can involve them," said Simon Johnson, a former chief economist at the International Monetary Fund who now teaches at the M.I.T. Sloan School of Management. Johnson, who's been critical of the selection -- warning that "Bill Daley now controls how information is presented to and decisions are made by the president" -- said it was "essential" for Daley to sell his stake.

But Daley doesn't have to. Though his holdings would likely forbid him from participating in matters directly involving JPMorgan Chase, if he were to maintain his shares he'd simply need to recuse himself from those specific issues involving his former employer, or he could obtain a waiver, according to federal rules. Daley could also place his holdings in a blind trust over which he'd have no control.

As White House chief of staff, Daley wouldn't be directly involved in writing the new rules that will govern Wall Street. Dodd-Frank, the 2010 law overhauling financial regulation, calls for more than 200 of them.

But that shouldn't even matter, said Mark Blyth, a member of the Warwick Commission on International Financial Reform and a professor of international political economy at Brown University.

"Do you expect people not to have shares? That anybody working in government should immediately divest themselves of all interests?" asked Blyth.

Arguing that those with knowledge of finance would make for better regulators, Blyth said it's natural for them to have stock holdings. "If you start forcing people to divest themselves of their investments to take on government work, you are seriously restricting your talent pool."

Blyth added that for Daley, so long as he either sells his stake or relinquishes control of it, his ownership of bank shares shouldn't preclude him from the White House position.

"It's not like he's going to be directly writing financial regulations," said Blyth. "So, are we really going to make the case that the chief of staff, because he wants the share price of JPMorgan to stay high, is going to write the rules of government such that they're benefitting?" he asked.

Blyth said he was "shocked" that Daley had so few shares, given his top position at JPMorgan and the exorbitant compensation showered on bankers over the years.

"Also, there's a long chain of causation you have to walk through to make that story stick," Blyth added. Independent federal agencies, with Senate-confirmed chiefs, write and interpret federal regulations.

Daley is expected to formally begin in his new position this week.

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Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

Regulators Want To Take Back Billions From Failed Bank Execs

Ryan McCarthy   |   January 5, 2011    8:11 AM ET

WASHINGTON: U.S. banking regulators have authorized lawsuits against 109 bank officials so far as they seek to recover at least $2.5 billion in losses connected to recent bank failures.

The Federal Deposit Insurance Corp said on Tuesday the suits target bank directors and officers for "either gross or simple negligence." It is seeking to recoup money for its deposit insurance fund, which backs customer accounts.

The FDIC has previously said it was pursuing such legal actions but now has unveiled a website with updated numbers.

The website will be updated monthly with a running tally of the amount of lawsuits authorized and how much the agency is seeking to recover. So far, however, the FDIC has only filed suits against directors and officers from two banks.

In November, the agency sued former executives and directors of Heritage Community Bank of Illinois. When the bank failed in February 2009, the FDIC estimated it would cost the insurance fund $41.6 million.

In July, the FDIC also sued to recover $300 million from former executives of IndyMac Bancorp Inc, a large California mortgage lender that failed in July 2008.

The agency has pursued lawsuits against executives of failed banks in the past. From 1986 to 2009 the government recovered $6.2 billion from these types of suits, according to the FDIC.

The FDIC suffers the losses to its deposit insurance fund when a bank is seized.

In 2010, 157 banks with total assets of $92 billion failed. FDIC Chairman Sheila Bair has said the agency expects the number of failures to drop in 2011.

(Reporting by Dave Clarke; Editing by Gary Hill)

Copyright 2010 Thomson Reuters. Click for Restrictions.


Holly Petraeus To Be Elizabeth Warren's Pick For Top Post In New Consumer Protection Agency (EXCLUSIVE)

Shahien Nasiripour   |   January 3, 2011   12:00 AM ET

Elizabeth Warren, the Obama administration appointee now establishing a consumer financial protection agency, plans to name the wife of General David Petraeus--the top American general in Afghanistan--to a new position tasked with protecting military families from predatory lenders, according to sources familiar with the planning.

Holly Petraeus, a longtime advocate for military families, is expected to be named to the senior post sometime later this week, according to the sources, who spoke on condition they not be named. They characterized her selection as part of the administration's designs to crack down on unscrupulous lending operations that have thrived by focusing on vulnerable Americans--not least, military personnel and their families, who have been contending with a weak economy at home just as many breadwinners are serving overseas in the dangerous conflict zones of Iraq and Afghanistan.

Petraeus's appointment is aimed at empowering the agency to target abusive lenders without running afoul of Republicans in Congress, said the sources. Member of the GOP have portrayed the new institution as an enemy of free enterprise, warning that it could restrict credit by impeding the financial industry.

A generally respected commander in the Iraq war and now in Afghanistan, General Petraeus enjoys the favor of both Republican and Democratic lawmakers--boosting the administration's hope that his wife and her initiative will be politically difficult to oppose, the sources said.

Holly Petraeus has spoken passionately about the often-ruthless lending operations that have proliferated outside military bases.

"You see that strip outside installations--the pawn shops, the tattoo parlors, the shady auto dealers," she recently told an interviewer for USAA Magazine, the official publication of the United Services Automobile Association, an insurance and banking firm that caters to current and former members of the military. "I once heard those businesses described as bears lined up at a trout stream."

Nearly three-fourths of financial counselors and attorneys said they have sometime in the last six months counseled members of the armed forces who had fallen victim to abusive or discriminatory auto lending, according to a survey commissioned by the Department of Defense, as cited in a Feb. 26 letter to the Treasury Department from Clifford L. Stanley, under secretary of Defense for personnel and readiness. Auto loans are the "most significant" financial obligations for the majority of military members, Stanley wrote.

He noted that members of the military and their families are under "increasing stress," ranking finances as second on their list of primary worries, behind only "work and career concerns." Among these families, he added, financial concerns trump even their places of deployment, "health, life events, family relationships and war/hostilities."

The issue is of top importance to the Pentagon. With two ongoing wars, the military can little afford to have troops anxious about the financial well-being of family members back home, who are seen as easy marks by predatory lenders.

"The Department of Defense fully believes that personal financial readiness of our troops and families equates to mission readiness," Under Secretary Stanley declared in his letter to Treasury.

In addition to active military personnel, veterans represent a potentially lucrative target for a wide range of scam artists, from online or over-the-phone identity theft rings to bogus charities set up to purportedly help service members.

Many veterans have steady access to benefits through the Department of Veterans Affairs and other government agencies that can be particularly attractive to con operations.

Consumer and veterans groups have warned about such scams for years. In 2003, the National Consumer Law Center, an educational and advocacy group, published an extensive report alleging that "a torrent of consumer-abusing businesses directly target this country's military men and women daily." The report noted the prevalence of cash advance businesses that charged astronomical rates of interest set up right outside military bases.

Three years later, Congress adopted rules setting a 36 percent cap on so-called payday loans made to active-duty military and their families.

Two years ago, the VA warned veterans of a telephone scam in which callers posed as VA employees and asked for credit card information over the phone, supposedly to update prescription information.

The Better Business Bureau last month warned of bogus e-mails seeking personal information that was sent out by someone who claimed to be an attorney with the VA.

Holly Petraeus has been active in assisting military families in their efforts to cope with financial strains. She currently serves as director of an initiative known as BBB Military Line, an educational program launched by the Council of Better Business Bureaus that informs military personnel on sensible financial management and warns them about scams. She helped develop the curriculum now used to educate service members.

Petraeus and Under Secretary Stanley both spoke in favor of creating the new consumer financial protection agency, despite the strident opposition of Republicans in Congress. The agency's creation was the long-standing vision of Warren, a passionate consumer advocate, Harvard Law professor and former federal bailout watchdog.

Warren met with Holly Petraeus for about 30 minutes on Oct. 12, according to Warren's daily calendar. A spokesman for Warren declined to comment.

The Pentagon has grown so concerned about the reach of abusive lenders in its communities that it entered one of the most pitched battles over the legislation that created the consumer financial protection agency.

Early last year, some members of the Senate tried to insulate auto dealers from the proposed agency's reach, claiming that new rules imposed on that sector would suffocate credit for car-buyers. Warren and the Obama administration insisted that the agency be able to regulate auto loans provided by car dealers. Some senators, led by Sam Brownback, a Kansas Republican, fought for a loophole.

The Pentagon lobbied to give the agency the authority to regulate. Still, the exemption survived, leaving only auto loans issued by banks under the new agency's purview.

That left the Pentagon's concerns unchecked, adding momentum to the process that is now expected to culminate with Holly Petraeus's appointment later this week.

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Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

Chris Kirkham is a business reporter for The Huffington Post. He can be reached at kirkham@huffingtonpost.com or 646-274-2444.

The Soviet GOP: There's Something Red About This Whitewash

Rob Warmowski   |   December 15, 2010    5:32 PM ET

Some younger readers might need a refresher course in the workings of a thing called the Soviet Union. Republican apologists for Wall Street are doing their best to provide one.

Before 1991, the United States was not the planet's sole superpower. There was one other: the Soviet Union or USSR. Centered in Russia, the USSR was a repressive, totalitarian dictatorship that had no free press, no freedom of assembly or speech, and routinely rewrote history to serve the interests of the sitting government in Moscow.

When I say they rewrote history, I'm not using a figure of speech. Books, journals and texts containing historical facts that had become inconvenient to the Soviet regime were routinely edited after publication to scrub away bothersome reality.

Photos, posters and paintings were retouched, and images of celebrated persons who were later deemed enemies of the state disappeared from group photos long before Photoshop existed to make the job easy. Encyclopedias were amended with replacement pages and readers commanded to tear out and destroy the old to replace with the new. Defeats in war, evidence of economic chaos or social unrest -- any story that painted the ruling power in anything less than a brilliant light could be and was wiped away. The Soviet state was serious about rewriting historical facts to serve its message.

The USSR collapsed, but its practices are alive and well today in, of all places, Republican politics. Where the Soviets erased words so as to pretend that its own victims or failures never existed, GOP congressmen are today busily scrubbing the record, wiping away any mention of the guilty.

Today, the arena is the Financial Crisis Inquiry Commission, a bipartisan investigation into the causes of the financial crisis of 2008-2010. The ten-member commission has for a year subpoenaed witnesses and documents by the thousands, its final report to appear January 15.

To the surprise of nobody who has been paying any attention, commission findings illustrate the crisis was mainly caused by a securities bubble based upon packaging of shady residential mortgages, a bubble that Wall Street aggressively inflated, locking in billions in short-term profits while leaving investors around the world holding the bag when reality caught up and the bubble popped.

Because these historical facts pose mighty contradictions to the standard free-market deregulatory claptrap peddled as gospel by Republicans for the past thirty years, the commission's four GOP members have moved, Soviet-style, to wipe away all mention of the words "Wall Street" from the report:

Frustrated in part by the Financial Crisis Inquiry Commission's chairman, Phil Angelides, and the tenor of the panel's preliminary findings, the Republicans are choosing to ignore the five Democrats and lone independent and issue their document ahead of the commission's Jan. 15 release..


During a private commission meeting last week, all four Republicans voted in favor of banning the phrases "Wall Street" and "shadow banking" and the words "interconnection" and "deregulation" from the panel's final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal.

Under-regulated capitalism is not a single-party problem. One look at the president and his economic team will tell you that Republicans are not alone in wishing that Wall Street's record of economic terrorism could be wiped away. But how ironically fitting is it that the GOP -- the spiritual home of red-baiting -- would step forward as the censoring comissars ready to actually do it?

Financial Crisis Panel In Turmoil As Republicans Defect; Plan To Blame Government For Crisis

Shahien Nasiripour   |   December 14, 2010   11:30 PM ET

The four Republicans appointed to the commission investigating the root causes of the financial crisis plan to bypass the bipartisan panel and release their own report Wednesday, according to people familiar with the commission's work.

The Republicans, led by the commission's vice chairman, former congressman and chair of the House Ways and Means Committee Bill Thomas, will likely focus their report on the explosive growth of subprime mortgages and the heavy role played by the federal government in pushing mortgage giants Fannie Mae and Freddie Mac to purchase and insure them. They'll also likely focus on the Community Reinvestment Act, a 1977 law that encourages banks to lend to underserved communities, these people said.

The Republicans' report is expected to conclude that government policy helped inflate the housing bubble and that prices weren't expected to crash because the government pushed homeownership so aggressively. They say that the report will note that once the bubble burst, a financial panic followed because firms weren't adequately prepared.

Frustrated in part by the Financial Crisis Inquiry Commission's chairman, Phil Angelides, and the tenor of the panel's preliminary findings, the Republicans are choosing to ignore the five Democrats and lone independent and issue their document ahead of the commission's Jan. 15 release. Angelides is described as a demanding boss who's said to be difficult to work for. Both Thomas and Angelides pledged in January that they'd strive to reach bipartisan consensus.

The Republicans' move indicates that the highly-partisan nature of Washington has infiltrated the commission's work and threatens to derail it. With four commissioners now essentially going around the panel to describe their thoughts on the roots of the financial crisis, the public may not get the full picture when it comes to understanding how the actions of a few led to the worst economic downturn since the Great Depression.

Instead, the public will receive a report that could be discredited as being partisan, and another that is expected to largely conform with a Wall Street-friendly view that blames government for the crisis.

During a private commission meeting last week, all four Republicans voted in favor of banning the phrases "Wall Street" and "shadow banking" and the words "interconnection" and "deregulation" from the panel's final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal.

"I think a number of us had really pulled for" bipartisan consensus, said Born, a Democratic commissioner who famously tried to regulate certain derivatives as head of the Commodity Futures Trading Commission. "But this action by the Republicans indicates they have decided to go their own way."

Born said the Republicans had not informed the commission of their plans, nor had they shared their report. She said she was "disappointed" because the views of her Republican colleagues would have been "useful."

The other Republicans on the panel are Peter Wallison, a fellow at the American Enterprise Institute, a conservative Washington research organization, who once served as general counsel at the Treasury Department; Keith Hennessey, who formerly served as George W. Bush's senior economic adviser while heading the National Economic Council and now works as a fellow at the Hoover Institution, another conservative research organization; and Douglas Holtz-Eakin, who formerly led the Congressional Budget Office and now heads the American Action Forum, a policy institute in Washington.

The shadow banking system refers to the part of the financial system in which investors and other nonbanks like hedge funds and investment firms provide credit to borrowers, as opposed to more traditional banks. Interconnection refers to the links that bind financial institutions to one another, like derivatives, borrowings, and investments.

"I certainly felt, and I think the majority of the commission felt, that deleting those phrases would impair the commissioners' ability to give a full and fair and understandable report to the American people about the causes of the financial crisis," Born said.

"Certainly, it's hard to imagine Wall Street wasn't involved," she added.

Born said that the Republicans wanted to ban two other phrases "of the same ilk," but she said she couldn't remember what they were.

Thomas and Wallison didn't immediately respond to e-mails sent after regular business hours. Hennessey and Holtz-Eakin declined to comment.

The Republicans' move puzzled some observers.

Thomas displayed populist outrage during public forums at the excessive compensation paid to top bankers. Holtz-Eakin is a respected economist who asked probing questions during the commission's hearings.

Born said that the commission only recently experienced such partisanship.

"There was a lot of consensus on the nature of the investigation," Born said. "All 10 [commissioners] participated in discussions about subjects we should investigate, what our hearings should be about. They all were involved in planning the hearings."

Wallison, though, was expected to dissent. He exhibited sympathy for Wall Street during the panel's public hearings, declining to grill some executives, an activity some commissioners appeared to relish, and focused instead on the role played by Fannie Mae and Freddie Mac.

According to Wallison, as many as half of all home mortgages were given to borrowers with poor credit or who didn't provide proper documentation, like tax forms and income statements, he said during an April 7 hearing. He attributes this to Fannie and Freddie's insatiable demand for subprime mortgages, something he blames on the federal government and its desire to stimulate lending to the poor.

Experts agree that while Fannie and Freddie and the federal government's push to encourage homeownership played a significant role in causing the crisis, actions by Wall Street magnified the fallout and caused a crisis that led to the Great Recession. Economists from the Federal Reserve, as well as bank regulators first appointed by Republicans, agree that the Community Reinvestment Act played virtually no role in causing the financial crisis.

But the Republicans' report will largely focus on the role played by the federal government. It will note that a crisis was averted after the government bailed out Bear Stearns and facilitated its absorption by JPMorgan Chase, according to people familiar with the matter. The crisis roared back after the government allowed Lehman Brothers to fail, scaring nervous investors. A bigger and more protracted downturn was avoided when policy makers essentially bailed out the entire financial system.

Yet while the commissioners knew of Wallison's views, the final report would have benefitted from input by the Republicans, Born said.

Other than Thomas, the Republicans slowly began limiting their participation in the panel's activities starting in early August.

Hennessey and Holtz-Eakin, for example, have missed about half of the commission's meetings since then, according to a person familiar with the panel's activities.

And other than Thomas, the Republicans have provided only limited feedback on drafts of the final report's sections that have been circulated by the panel's staff, this person said.

"All of the commissioners have had the opportunity to review and provide feedback," said Tucker Warren, the crisis panel's spokesman. He said he wasn't aware of any commissioners complaining about a lack of opportunity to address draft findings.

The Republicans are expected to complain that the Democrats on the panel are not giving them sufficient options to air their views. Each commissioner is allotted nine pages in the book version to express alternative or dissenting views, should there be any, Warren said.

That's part of the reason why the Republicans are angry, according to people familiar with the matter.

However, commissioners will have unlimited space on the panel's Web site and in the government-printed version of the report that will be delivered to Congress and President Barack Obama, said Warren.

Thomas is expected to hold a news conference tomorrow.

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Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

Warren Helped Shoot Down Bill That Would Have Sped Foreclosures, Calendar Shows

Shahien Nasiripour   |   November 24, 2010    4:00 PM ET

Elizabeth Warren was the first senior Obama administration official to recognize the potentially incendiary impact of a bill that would have made it significantly easier for mortgage companies to foreclose on homes, and her subsequent warnings played a crucial role in persuading the President to veto the measure, according to freshly released documents and people familiar with the deliberations.

The disclosure that Warren was instrumental in halting a bill that would have streamlined the foreclosure process comes as she confronts fierce criticism from Republicans on Capitol Hill for the way she was appointed to construct a new consumer financial protection bureau, and characterizations that she is inclined to take an overly punitive tack with Wall Street.

A long-time advocate for greater regulation of the financial system and a prominent critic of predatory lending, Warren now finds herself at the center of an intensifying debate over the relationship between the Obama administration and the business world.

For consumer advocates, who have long decried what they portray as Wall Street's outsized influence in Washington, Warren represents their greatest hope that big banks will be more tightly supervised following the worst financial crisis since the Great Depression. For a vocal group of business leaders and their Republican allies, Warren has become Exhibit A in their case that the Obama administration is anti-business.

The decisive way in which she labored behind the scenes to stymie a bill that would have eased requirements for documentation in the foreclosure process underscores how her arrival has altered the administration's relationship with major banks.

The bill, which passed both houses of Congress and awaited President Obama's signature to become law, essentially would have compelled notaries to accept out-of-state notarizations, regardless of the rules in those states.

State officials across the country--who have been pursuing probes looking into wrongdoing within the foreclosure process-- feared that those jurisdictions with lax standards could have become hotbeds for foreclosure documentation fraud. Lenders and mortgage companies could have used those states as central clearing houses to produce bogus foreclosure paperwork, and then export those documents to other states with more stringent regulations--an expedient bypass around the strictures.

Obama ultimately declined to sign the law, and the House of Representatives failed to override the veto.

Officials said Warren was among the first federal officials to recognize the significance of the notary bill, titled the Interstate Recognition of Notarizations Act of 2010. She met with authorities from several states and then relayed their concerns to influential administration officials.

During the morning of Oct. 6, Warren's team at the Treasury Department wrote the first memos on the bill, raising questions about the possible consequences if it became law, these people said.

That evening, Warren met for 30 minutes with Peter Rouse, Obama's interim chief of staff, her calendar shows. She later spent an hour on the phone with Illinois Attorney General Lisa Madigan, who once sued Countrywide Financial and exacted an $8.4 billion multi-state settlement.

The next day, Warren participated in an afternoon meeting on the bill, her calendar shows. During that meeting one of Obama's top spokesmen, Dan Pfeiffer, posted an entry on the White House Blog explaining why Obama would not sign the bill.

On Oct. 8, Obama declined to sign the bill into law, citing the need for "further deliberations about the possible unintended impact" of the bill on "consumer protections, including those for mortgages."

Documents released Wednesday show that Warren met or spoke with at least eight state officials leading a 50-state investigation into possibly-fraudulent mortgage documentation practices.

The state attorneys general, secretaries of state and bank supervisors are probing the way in which major mortgage companies have pushed through thousands of foreclosure cases at a time, as if on a factory assembly line, by short-cutting the required documentation process.

Recent weeks have featured a host of unsavory disclosures about how mortgage companies employed so-called robo-signers-- people whose sole job was to sign foreclosure documents without reading them or confirming basic facts, as required by law. The volume of cases and shoddy handling of paperwork is reflective of the messy and indiscriminate lending practices that characterized the nation's housing boom, as Wall Street eagerly handed mortgages to seemingly anyone willing to sign off.

The states' investigation and a parallel multi-agency federal probe are now roiling the mortgage industry, heightening the possibility that major lenders could face potentially huge fresh losses as bad loans continue to emerge. With legal and regulatory uncertainty now enshrouding the industry and public outrage trained on foreclosures, the banks could have trouble limiting those losses by selling off the homes pledged against bad mortgages.

The nation's biggest lender, Bank of America, has seen its share price drop 18 percent through yesterday's market close since the day before the states announced their joint inquiry.

Warren serves as an assistant to Obama and a special adviser to Treasury Secretary Timothy Geithner as she leads the effort to create the new Bureau of Consumer Financial Protection, a watchdog designed to protect borrowers from abusive lenders. Her calendar from Sept. 20 to Nov. 2 was released per a Freedom of Information Act request.

The longtime Harvard Law School professor and consumer advocate met or spoke with the state attorneys general from Iowa, Illinois, Texas, North Carolina, Massachusetts and Ohio, her calendar shows. She also met with Ohio Secretary of State Jennifer Brunner, and spoke with New York's top banking regulator, Richard H. Neiman. They are among the leaders of the combined state probe.

Warren has long chided federal regulators for their lax oversight of the financial industry and slipshod protection of consumers. She's championed state regulators, however, who have often been ahead of their federal counterparts when it comes to consumer finance issues.

Warren's calendar also shows numerous meetings with bankers and their representatives. Financial executives and lobbyists have noted that Warren was reaching out to them more than they initially expected. The calendar confirms her outreach.

On Sept. 20, the same day she took a photo for her Treasury Department badge, Warren spent an hour and a half meeting with bankers from Oklahoma, her calendar shows. She spent an hour having lunch with Geithner that day as well.

Since then she's met with the chief executives of the nation's largest banks, including Vikram Pandit of Citigroup; Jamie Dimon of JPMorgan Chase; John Stumpf of Wells Fargo; James Gorman of Morgan Stanley; Richard Davis of U.S. Bancorp; W. Edmund Clark of TD Bank Financial Group; David Nelms of Discover Financial Services; Niall Booker of HSBC North America Holdings; and Kenneth Chenault of American Express.

The calendar entry for Chenault's one-hour meeting on Oct. 13 notes that "He's flying here for us."

Warren also met with officials from Goldman Sachs and Deutsche Bank, Germany's biggest lender and one of the world's biggest financial institutions.

Notably absent from Warren's calendar are officials from Bank of America, the biggest bank in the U.S. by assets and branches, including its chief executive, Brian Moynihan.

Warren's calendar includes meetings with investors and trade groups, like the Consumer Bankers Association, the Independent Community Bankers of America, the Financial Services Roundtable and the Securities Industry and Financial Markets Association.

Though Warren is known for her vigorous advocacy on behalf of consumers, she's spent more time with bankers and their lobbyists than with consumer groups and advocates during her roughly two months on the job.

Warren's 2007 journal article calling for the creation of a dedicated consumer agency inspired policymakers to enact it into law. Big banks opposed it.

Warren has also met with nearly two dozen members of Congress from both sides of the aisle, including the likely incoming chair of the House Financial Services Committee, Rep. Spencer Bachus, and the top Republican on the Senate Banking Committee, Richard Shelby. The Alabama Republicans have been particularly critical of Warren and her new agency.

Warren's calendar features numerous White House meetings, like a two-hour dinner on Sept. 23 with top Obama adviser David Axelrod and breakfasts and lunches with another top Obama counselor, Valerie Jarrett. She's also met with the heads of all the major federal financial regulatory agencies, including Federal Reserve Chairman Ben Bernanke.

Among Warren's early initiatives are efforts to make credit card disclosure forms shorter and easier to read, and simplifying mortgage documents. Her first major speech since joining the administration was a Sept. 29 address to the Financial Services Roundtable, a Washington trade group representing firms like JPMorgan Chase, BlackRock and State Farm. She asked the assembled executives to work with her to create a new system of consumer regulation focused on core principles rather than a mountain of specific rules.

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Shahien Nasiripour is the business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.